Weekly Macro Review

March 27, 2022

Triple Play Review

Weekly view shows all 3 of our ETFs tacking on follow through after the strong reversal candles. The hard test of the $SPY $QQQ RSI bull ranges are looking successful as they didn’t stay below RSI 40 long and on the bounce the price charts are working on clearing the MA bands as well. $IWM is a slightly different story as it tacked on some gains this week, its RSI looks more like a RSI bear range shift feels anemic still. It was a rough-looking candle and makes me wonder if small caps might lag again, even on a move toward testing the old highs overall.  The higher time frame has stuck a reversal at an important spot so far, until that changes it looks constructive.

The strength has been impressive and has so far locked out many by not giving much for pullbacks. However, on the daily the only chart where RSI has moved over 60 is $SPY with $QQQ right behind it, but niether are convincing just yet. A big rejection here would be a terrible sign. The hard part will be telling a true rejection from a little digestion after a strong bounce off the lows. No one knows which way that will resolve, we just have to pay close attention and be able to act when it does.   $IWM Lagging here raises the caution level, but doesn’t have to be critical in the intermediate term. We have seen plenty of periods where larger companies have run without the small caps playing along, and with the overriding concerns we have today it is not farfetched to see that materialize until the noise tones down and confidence begins to build again.

The 65min shows strong RSI bull ranges across the board.  The pullbacks on this level so far have been short and sharp for the big boys and a little more difficult for the $IWM. It has not made new highs since Tuesday. While I said we can go higher without small caps participating, it is also true whichever way this $IWM chart breaks will likely send short-term ripples across all the equity markets while investors grapple with the continued mixed messages.  

The $QQQ to $SPY  relative comparative charts are still improving quickly after making the failed breakdown on the weekly view. If this lasts, then we will not only be focusing on larger players but also more over to the growth side of the mix. I suspect it will be a good tell during any nearterm consolidation or pullback.  In the bottom chart I show the stark contrast to what we see the $IWM to $SPY comparatives are presenting. This shows the small cap move is already rolling over on a relative basis and looks much more precarious going forward. It is not a new message in these comparatives as small caps been weak much longer than overall markets. If these relationships do start to change character it will be welcome and we will be sure to point it out early out here..

World and Intermarket

The World ETF RS Rankings have not changed a ton of leadership in recent weeks, but there is movement inside. The list below is sorted by the RS gainers column showing $SPY $QQQ on the list but not $IWM. From a global perspective $EWZS had a huge catchup week to the larger $EWZ. Some interesting ones to watch here.  Most have moved fast off the lows and could use some digestion, but $EIS $EWS $EWL $EWU $PGAL $EWL moving into on RS sweet spot and could be monitored for new setups in the near term.

Intermarket ETF RS rankings are still commodity driven with $DBA making some RS progress this week. $IWM however could not hold last weeks jump as $SPY came in and switched spots showing large caps are trying to reassert themselves. This is a sign that some of the buying is moving from mostly short covering and short term velocity trading to actual building new positions. As long as investors are still nervous it makes sense for them to focus more on the larger companies in both the value and growth spaces as they decide to wade back in.

Size and Style ETF Rankings show its still a value world overall. The bounces in growth spaces, while fast, have not covered enough ground to retake the leadership from value, mainly because value is remaining strong in its own right.  It may not have the velocity of growth, but its also not giving a lot of reasons to sell it here either. This list also shows a tough go for the entire small cap complex as the safety of size is definitely showing through.

Power Universe

Breadth Progress is important. If it starts narrowing too much again here, it will be a big warning; but for now it is still progressing overall. With small caps lagging again we will be watching to see how far this goes. While this is playing out, it suggests leaning to larger cap opportunities and market cap weighted ETFs until we see better data out of the smaller players. If we do get more market digestion, it will be important to see how deep this narrowing goes to gauge the warning level mentioned above.

  • Longer Term:
  • Longer term measures have made progress overall, but still work to do
  • NHNL Differential moved strong positive at end of week and pulled the 10ma back above zero with it. 
  • NHNL 30ma needs more to get it back above zero to reset the signals.
  • Advance Decline Line slightly lagging here further confirming the larger company dominance at this juncture of the rebound
  • %>200sma has also made progress, but has not been able to get above the 50% mark.
  • Intermediate:
  • %>50sma is back over 50% and consolidating there over the last week. it would be good for it to hold over that level during any pullback, but that will likely be a big task if smaller companies aren’t participating.
  • McClellan Summation has been a bright spot and is now moving over the flatline
  • Shorter Term:
  • Shorter term measures showed plenty of divergences into the lows, then a thrust, now at a decision point.
  • %>20sma rejected at the top quadrant 1st attempt, where it goes from here will be a big tell. staying over 50% important
  • Breadth Thrust  and the McCellan Oscillato neutrality at the lows were a big tell, not much big info here for now, they did there Job…
  • PMNLC remained strong for the week and new lows are noticeably absent

Only real highlight here might be the big drop in Healthcare RS. We have been seeing some improvement which took a hit this week. Many charts look like they are setting up after decent runs, so might be worth an eye. Energy and Materials continue to dominate while Consumer Discretionary back to the worst performers on an equal weight basis.  Utilities have continued their grind and closing a strong month.  That is another message on the yield and caution side of the ledger we should keep our guard up, even while looking for places to participate.

To wrap it up, the move off teh lows has turned into more than just a short covering bounce, but still doesn’t have broad commitment.  That will be fuel if it starts to change or a reason to lighten up if not.  The end of the quarter is upon us this week and it will be interesting to see which camp wins. Buyers looking for more of a run into quarter close to save help the numbers and be seen in the right places.  Or sell off into the quarter end to make sure you are not seen in the beat up growth names that still have large quarterly deficits on the performance sheet. Maybe a little of both, but it won’t matter if we stay focused on the data and relative strength and weakness.

Look for our Power Sector Review for a closer look under the hood. You can find these and other charts on our Stocktwits and Twitter feed @Power1nvesting and throughout the Strength Training tab on this site. Anything mentioned is for education purposes only and are not meant to be recommendations to buy or sell any securities. Please see the full disclosure in the footer for more information.

As always, I hope this helps!